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Business groups are opposing recommendations by the Productivity Commission to create a new type of enterprise agreement in which employees could opt out after a 12-month timeframe.

The Australian Industry Group says the short opt out period would create “significant uncertainty” for employers and says workers should be forced to stay in the contract for at least three years.

In a submission responding to the Productivity Commission's workplace relations inquiry, AI Group, while supporting the concept of enterprise contracts, says the proposed 12 month opt-out period "would create significant uncertainty and would deter employers from hiring employees on the basis of enterprise contracts", the Australian Financial Review reported.

The proposed new regulatory instrument, the Enterprise Contract, aims to give greater flexibility to small to medium businesses when negotiating industry awards. Businesses with more than 20 employees would be able to negotiate their own workplace agreements without having to get them signed off by the Fair Work Commission.

The Productivity Commission says the new agreements would allow business to negotiate individual flexibility arrangements without the need for an employee ballot, offering many of the advantages of enterprise agreements, yet without the complexities.

However, a key area of contention surrounds the 12-month timeframe suggested by the Productivity Commission, after which employees can choose to “opt out” of the agreements and return to the industry award, should they wish to do so.

"The proposed maximum three year nominal term for enterprise contracts which is substantially less than the proposed five year maximum term for enterprise agreement provides sufficient protection, particularly when the very extensive other protections proposed by the Productivity Commission are considered," AI Group wrote in its recent submission.

The Council of Small Business of Australia chief executive Peter Strong has echoed AI Group’s stance that a three-year opt out timeframe would be better for business.

“Certainty is what is good for everybody, whether for the employee or the employer,” Strong was reported saying on the Smart Company website.

“Three years is much more logical. I totally support that because it’s about certainty for everybody. One year is like a trial period,” he says.

The introduction of Enterprise Contracts may actually increase administrative costs for employers, despite claims to the contrary by the Productivity Commission, says Kurt Walpole, PhD Candidate at the School of Government, University of Sydney.

“Employees’ free choice could mean employers end up with multiple contracts that only cover some employees while others remain on the award or their existing conditions,” Walpole writes in The Policy Space.

“Having many different arrangements for different individuals would increase administration costs and confusion,” he says.